Global demand expected to remain high enough for LNG development in B.C.

Friday, April 5, 2013

By Gordon Hamilton, Vancouver Sun

An LNG carrier is docked at a quay in Japan, where shuttered nuclear plants have driven up the price of LNG.

Photographed by:Koji Sasahara, The Associated Press, Vancouver Sun

Despite uncertainties about the price liquefied natural gas will bring in Asian markets, demand for energy is going to be high enough to ensure that some, if not all, of the five proposed British Columbia LNG plants are built, the co-chair of the Pacific Energy Summit said Thursday.

Kevin Lynch, who is also vice-chair of BMO Financial Group, said “unambiguous demand” from Asia’s growing economies will keep prices high enough to make LNG profitable.

“You know the demand is there, even though the price is uncertain,” he said during a meeting with the editorial board of The Vancouver Sun.

Lynch and co-chair Dennis Blair, a former U.S. director of national intelligence and a current director of the National Bureau of Asian Research, both said not all of the LNG proposals will be built. There are 17 applications for terminals along the U.S. Gulf Coast alone, Blair said.

“The one who goes first will be the one who succeeds,” Blair said.

Natural gas is selling in the range of $18 a unit in Asia compared to $4 a unit in North America, where new drilling technologies have led to a natural gas glut.

However, that price gap is not expected to last. The price in Asian countries is regulated and pegged to the price of oil. Deregulation and the development of an Asian gas trading hub, where market forces would determine the price, will take several years, according to a 2012 report by the International Energy Agency titled Gas Pricing and Regulation.

But even if a trading hub is established, other factors, from sheer economic growth to stricter environmental regulations on coal-fired plants in China, are expected to keep demand robust, Lynch said.

The IEA report notes that Chinese consumption of natural gas is expected to double between 2011 and 2015.

Gaining access to Asian energy markets is essential for Canadian oil and as well as gas, Lynch said. The “huge change” in the U.S. energy supply ushered in by the development of horizontal drilling and hydraulic fracturing of shale deposits means that Canada no longer has the security of relying on the U.S. market. Yet the country’s energy infrastructure is mostly north-south. Diversifying by developing pipelines to offshore markets is in the national interest, he said.

Blair said that as the U.S. approaches near self-sufficiency in energy as a result of the development of unconventional oil and gas reserves, countries like China and India will become more dependent on transit security for oil along the world’s shipping lanes. As U.S. reliance on foreign oil shrinks, he said, the Chinese and Indian navies should be expected to play a larger role with the Americans in maintaining shipping lanes.